Heritage’s policy experts closely followed every word of the first presidential debate between President Obama and former Governor Mitt Romney. They reacted instantly to the wide range of policy issues being discussed. The following is a compilation of their analysis. Several policy experts will join us at 10 a.m. ET Thursday for a Twitter chat.
What We Didn’t Hear Tonight
What wasn’t said at tonight’s debate spoke volumes. In an hour and a half focused largely on the economy, not a single mention was made about the importance that marriage plays in combating poverty. Not a single mention of how federal welfare programs can function as poverty traps, especially as the Obama Administration has gutted the work requirements that made welfare reform a success. As the debate turned to focus explicitly on health care reform and the role of government more generally, not a single mention of how the federal government under Obamacare, rather than protecting religious liberty, is actively coercing citizens to violate their consciences. The nuts and bolts of taxation, regulation, Medicare, Social Security, and other domestic policies are important, but so too are the ways that these and other government actions shape culture and interact with civil society. At the end of the day, culture and the institutions of civil society are what make America great. Our government shouldn’t be weakening them.
— Ryan Anderson
Where Do Ladders Come From?
When asked about the role of the government, President Obama brought up his favorite metaphor, “the ladder of opportunity.” And as usual, he incorrectly suggested that it’s government spending that creates these ladders of opportunity.
In reality, while government has an important role to play in upholding the rule of law, ensuring access to education, and providing a safety net, it cannot compete with the free market when it comes to creating opportunities. That’s why economic freedom—and not government spending—is one of the pillars of our American Dream.
Given the President’s statist and egalitarian impulses, perhaps the “escalator of results” might be a more fitting analogy next time: Everybody just hops on and we all get to the same place with little effort on our behalf.
— David Azerrad
More Federal Education Spending Is Not the Answer
During tonight’s debate, President Obama suggested increasing federal funding for education and hiring 100,000 new teachers. Hiring teachers is the responsibility of local school districts, not the federal government. As Jason Richwine and I wrote earlier this year in a response to the administration’s proposal to spend $1 billion to create a “Master Teacher Corps:”
For policymakers looking for a quick fix to our education problems, federal money cannot buy teacher quality. The only robust and reliable predictor of a teacher’s effectiveness is his or her past performance in the classroom. Licenses, certifications, advanced degrees, and hours of professional development have little to no impact on what students actually learn from their teachers. Paying for more of these qualifications would not lead to better student outcomes.
Further increasing federal education spending will fail to improve academic outcomes. Policymakers need to trim federal spending – not increase it – and empower state education leaders with control over their share of education funding. And there is plenty of room to cut spending.
Since the 1970s, federal per-pupil expenditures have more than doubled (after adjusting for inflation). Those increases haven’t all gone to the classroom or toward teacher salaries. Much of that money has gone toward expanding bureaucracy and non-teaching administrative positions in our nation’s public schools.
A better prescription for improving educational outcomes is empowering states with control of education dollars and decision-making, giving them the ability to craft policies that allow parents to direct their children’s education. Here’s Heritage’s plan for how to do just that.
— Lindsey Burke
Medicare is facing a trifecta of problems. A demographic issue (where close to 80 million baby boomers will enroll in Medicare by 2030); a structural issue (where over 80 percent of seniors have to depend on supplemental coverage to fill the gaps in Medicare); and a financing issue (where there are over $37 trillion in unfunded obligations facing the country’s future). There are distinct differences between President Obama’s and Governor Romney’s plans for the future of Medicare.
President Obama has already made significant changes to Medicare through his health care reform law. He depends on failed government price controls to cut Medicare by over $716 billion over the next 10 years, not to help shore up Medicare for future generations, but instead to help pay for Obamacare. Moreover, he depends a board of 15 unelected and unaccountable bureaucrats to enforce more cuts. [To read more, see Obamacare ends Medicare as we know it]
Similar to the Heritage plan, Governor Romney’s plan restructures the Medicare program for future generations. His proposal, called premium support, would provide a government contribution toward the cost of a private plan or traditional Medicare. It also guarantees that seniors would had access to plans that cover the government contribution while ensuring plans meet the same level of Medicare benefits.
Premium support is not a “voucher” any more than is current law. It just says government will pick up a big part of the tab for your health insurance, and if you want to spend more, then you pay the difference. There’s nothing exceptional about this. It is exactly what happens today under Medicare Advantage. It’s very similar to what happens today under the drug benefit, Part D. It’s similar to what happens today under Medicare Part B, which basically pays for doctors’ costs, because the beneficiary pays a premium and the government picks up the rest.
Calling premium support a “voucher” is a neat political trick, but you can’t disparage premium support by calling it a voucher any more than you can disparage Medicare as it operates today by calling it a voucher.
The Heritage Foundation has a specific and common-sense proposal to fix the problem with pre-existing condition exclusions.
— Alyene Senger and J.D. Foster
On energy policy, President Obama and Governor Romney present starkly different approaches. Obama seems content to continue with subsidies for preferred technologies—particularly for wind, solar, and electric cars. On the other hand, Romney wants to trim subsidies and allow consumers and producers make their own choices for the most affordable and reliable energy sources.
The differences were as stark and simple as this: Romney talked about expanding access to oil and gas, while Obama talked about raising taxes on oil companies.
— David Kreutzer
Transportation and Infrastructure Spending
Tonight, President Obama called again for increased government spending on programs like education, infrastructure, and transportation to create jobs. Listen up, taxpayers: This policy is flat out wrong.
Take transportation for example. Federal programs that give such gargantuan loans for transit projects such as light and high-speed rail lure cash-strapped states and cities into committing funding for projects that they can ill afford. The private sector’s conspicuous near-absence speaks volumes: these high-cost, low-value projects aren’t worth their investment, because either ridership projections fail to materialize or construction and operating costs run sky-high.
Without Washington’s meddling, states would likely pursue more affordable transportation priorities—ones that actually accomplish transportation policy’s goals of reducing congestion and improving mobility for motorists and commuters. If current transportation policies continue, taxpayers will find the President’s vision of “an America built to last” was just smoke and mirrors, and their wallets will be lighter for it.
— Emily Goff
How Do You Propose to Fix Social Security?
What does President Obama propose to do to protect Social Security recipients from the coming 25 percent benefit cuts? We still don’t know.
In response to a direct question from debate moderator Jim Lehrer about how he would fix Social Security, the President again refused to say anything of substance. Instead, he took refuge in broad generalities about the value of the program and then changed the topic.
Sadly, this refusal to face the issue is nothing new. For instance, back in June 2011, we said that:
In his  State of the Union Address, the President called for a bipartisan solution, but then he effectively took everything except raising taxes off the table. Unfortunately for the President, increasing taxes just delays major across-the-board benefit cuts—it does not prevent them.
Then Obama’s head of the Office of Management and Budget (OMB), Jack Lew, declared in a June 2011 op-ed that fixing Social Security should not be part of discussions about this country’s deficit problems because “Social Security benefits are entirely self-financing.” In discussing the diversion of federal tax money to repay the bonds in the Social Security trust fund, Lew asserted that “Now that we are paying Social Security back, the problem is not with Social Security, but with the rest of the budget.”
The fact is that Social Security is in deep trouble. As the 2012 Social Security trustees said: “Lawmakers should not delay addressing the long-run financial challenges facing Social Security and Medicare,” the trustees wrote. “If they take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare.”
Doing nothing means that all recipients will see a 25 percent benefit cut in less than 20 years. If the President won’t respond to a direct question before millions of viewers, we can only assume that either he has no plan, or that he does not believe that this is a problem.
— David C. John
Where Was the Constitution?
Although our country is a constitutional republic and the Constitution creates the office of the Presidency, our great charter of government was not mentioned at all during the first hour of the debate. And had Governor Romney not invoked it, it would have gone unmentioned, as neither the moderator, Jim Lehrer, nor President Obama saw fit to refer to it.
Governor Romney made the first reference to the Constitution when he cited the Tenth Amendment to explain why the federal government shouldn’t be meddling in everything. In the follow up, when asked about the proper role of government, he invoked, as he should, both the Declaration of Independence and the Constitution.
President Obama made no reference to either of our founding documents. Granted, the debate focused heavily on policy questions, but it is telling that he did not cite either one—especially when asked to explain his views on the aims of government. This, after all, is a President whose administration has repeatedly shown disregard for the Constitution, whether by circumventing Congress, unilaterally declaring it in recess or refusing to enforce certain laws.
— David Azerrad
Defense as a Budget Priority
Both President Obama and Governor Romney agree: A fundamental function of government is to keep Americans safe at home and abroad. Does it make sense, then, that the President’s budget would make defense the lowest budget priority? Or that he would not urge Congress to immediately reprioritize the automatic budget cuts that will gut the nation’s defense budget and harm our military capabilities? Apparently a lot of light can exist between rhetoric and actual policy.
— Emily Goff
Obama on Bill Clinton
President Obama inherited a recession, as he reminds us once again. He is also fond of hearkening back to the Clinton days, and suggesting that all he, Obama, really wants is to return to Clintonian tax rates.
To be sure, the economy prospered in the middle of the Clinton Administration after Republicans pressed him to cut the capital gains tax rate, but the economy sputtered badly in President Clinton’s first term following the Clinton tax hikes. Then President Clinton bestowed upon his successor, George W. Bush, a booming economy? No, President Bush also inherited a recession from his predecessor Bill Clinton. And now, thanks to Taxmageddon and the fiscal cliff, about which President Obama has been as quiet as a churchmouse, the next President will likely face yet another recession. Talking about the Clinton boom is fine, but there is always the Paul Harvey moment in which is told the rest of the recession story.
— J.D. Foster
The Role of Government
To President Obama and everyone else on the left, the view is that every problem requires a federal government response. In fact, state and local governments and the private sector are demonstrably better at solving most of the nation’s domestic challenges. Washington only smothers their initiative and creativity. The nation’s governors and state legislatures need to demand control of the things they do best–education, transportation, and so on–and Washington should listen and step aside.
— Patrick Louis Knudsen
Regulation and Dodd-Frank
Governor Romney was right to point to the Dodd-Frank act as an example of regulation gone awry. Intended to ensure that there is never a repeat of the financial collapse – and subsequent bailouts– of 2008, it actually makes them more likely. Rather than end “too big to fail,” it actually requires regulators to name financial institutions that are too big to fail. At the same time, the law imposes many other rules that have nothing to do with the financial crisis – such as price controls on debit cards, which have increased the costs of a variety of financial products and services. Making it all worse is the almost limitless delegation of power to regulators such as the new Consumer Financial Protection Bureau that are accountable to no one but themselves, and whose actions are depriving consumers of choice in mortgages, credit, and investment. Congress should go back to the drawing board on this failed legislation.
— James Gattuso
Obamacare Raises Taxes on the Poor and Middle Class
Earlier in the debate, President Obama proclaimed that he reduced taxes for the middle class. What he failed to mention is that he also increased taxes on the middle class. Let’s not forget that the President’s health care law will raise taxes on the middle class and the poor in four years as reported by the Congressional Budget Office. For instance, a family of four making about $24,600 per year, the projected federal poverty level in 2016, could be subject to Obamacare’s controversial individual mandate tax. This is only one of the 18 taxes and penalties imposed by Obamacare, some of which will hit Americans as early as January 2013.
— Romina Boccia
No Easy Fix for Social Security’s Permanent Deficits, Structural Reforms Needed
Contrary to what President Obama suggests, there is no easy fix for Social Security. Social Security is running permanent and growing deficits, threatening a 25 percent cut in Social Security benefits in 21 years. The Congressional Budget Office reported on the program’s fiscal woes just yesterday. Lawmakers must realize that tax hikes are not the answer and that there are different ways to save both Social Security and the economy. Saving both requires our attention now. Reforms include raising the Social Security retirement age gradually and indexing it to life expectancy to reflect Americans’ ability to live longer lives. Slowly moving to a flat Social Security benefit that keeps seniors out of poverty and making income adjustments to Social Security to target benefits to those who need them most.
Does President Obama really want to keep giving Social Security checks to millionaires? Governor Romney suggested that, while he would make no changes to Social Security benefits for current retirees or those near retirement, he would consider targeting benefits more effectively to those who need them most while cutting benefits on those affluent enough to care for themselves during retirement.
— Romina Boccia
Remove Oil Subsidies, But Get the Definition Right
President Obama mentions $4 billion in corporate welfare that big oil receives. A large part of that $4 billion figure comes from a broadly available tax provision and expensing options. The first is the Section 199 Deduction. This tax deduction, under Internal Revenue Code Section 199, goes to all domestic manufacturing. Producers of clothing, roads, electricity, water, and many other goods including renewable energy projects produced in the United States are all eligible for the manufacturer’s tax deduction. The Section 199 deduction is unavailable to the service sector, and even that is a stretch, as the tax deduction includes music and movie production.
Removing oil and gas production eligibility for this tax break is not removing a subsidy or closing a tax loophole, but imposing a targeted tax hike. In fact, Congress already imposed a tax hike on oil and natural gas companies by freezing the deduction at 6 percent when other manufacturers receive a 9 percent deduction.
Another non-subsidy target of the Administration is oil companies’ ability to expense capital costs in the year of the purchases. Immediate expensing allows companies to deduct the cost of capital purchases at the time they occur, rather than deducting that cost over many years based on cumbersome depreciation schedules. Expensing is the proper treatment of capital expenditures. Depreciation raises the cost of capital and discourages companies from hiring new workers and increasing wages for existing employees. Immediate expensing for all new plant and equipment costs—for any industry or type of equipment—would allow newer equipment to come online faster, which would improve energy efficiency and overall economic efficiency. Even President Obama has championed temporary 100 percent expensing for qualified capital because it lowers the cost of investment. Congress should make immediate expensing permanently available for all business investments.
Oil subsidies do exist in the forms of targeted tax credits (when the price of a barrel of oil falls to a low price), percentage depletion allowances that can be overly generous, and Department of Energy spending that the private sector should be doing. We should remove the actual oil subsidies but remove subsidies for all energy sources and technologies.
— Nicolas Loris
Social Security and Medicare may have provided seniors important support in the past, but they are no longer sustainable. In fact, the surest way to ensure the collapse of Medicare is to leave it alone. It will collapse. The only way to fulfill the missions of Medicare and Social Security is to restructure these programs so they can be sustained for the long term.
Entitlements are driving an unsustainable growth of federal spending, having swollen from less than half of total federal outlays just 20 years ago to nearly 62 percent in 2012. Three major programs—Medicare, Medicaid, and Social Security—dominate in size and growth, soaking up about 44 percent of the budget. All three programs are growing faster than inflation, and—when joined with $1.7 trillion in new Obamacare spending—will drain about 18.5 percent of the nation’s total economic output by mid-century. Because that is about the historical annual average of total federal tax revenue, it means all other government programs—national defense, veterans health care, transportation, and federal law enforcement, and others—would effectively have to be financed on borrowed money.
Platitudes and talking points will not solve this problem. Only sound, serious policy reforms will. Washington policymakers—who have ignored their fundamental budgeting responsibilities for more than three years—should start this process promptly, before federal spending truly races out of control.
— Patrick Louis Knudsen
Deficit Reduction Suggestions Ignored
After the President’s own Simpson-Bowles Fiscal Commission released its recommendations (some good, others not so good) to reduce the deficit and get the country’s fiscal situation under control, he promptly ignored it. Paying lip service to deficit reduction solutions is not leadership.
— Emily Goff
U.S. Businesses Investing Abroad
President Obama is suggesting that U.S. companies that invest abroad are somehow inferior to companies that do all their business domestically. This shows a fundamental misunderstanding of how the global economy works. A U.S. business investing abroad is good for the U.S. economy, because it makes the company more competitive at home and abroad in selling products into global markets. When a U.S. company moves into a foreign market to meet global demand, it creates jobs not only in the new market but in the United States, as well. For U.S. companies to be competitive in a global economy is good for America. The President should not punish U.S. companies for investing overseas.
— Romina Boccia
Stop the Spending
Both President Obama and Governor Romney discussed spending and budget deficits. Washington is currently spending around 23 percent of the economy (GDP), well above the historical average of about 20 percent of GDP. While revenues are temporarily low due to the recession and the sluggish recovery that has ensued, they will return to and indeed surpass their historical level of 18.1 percent once the economy recovers and Americans are back to work. Washington clearly has a spending problem. What the country needs is leadership that demands an end to the current irresponsible spending. This will curb budget deficits and rising debt that are threatening the economy. Americans are eager for solutions that get at the root of the problem: spending.
— Emily Goff
Spending and Debt
The President’s response to the spending and debt crisis is revealed by what he does, not by what he says. In the fourth consecutive year of deficits exceeding $1 trillion, the President’s budget for fiscal year (FY) 2013 continued a practice of relentlessly higher spending. As analyzed by the non-partisan Congressional Budget Office (CBO), spending in the President’s budget was $1.15 trillion higher over 2013-2022. Roughly half of the increase came from policy changes, and the other half from increased interest payments due to chronic deficit spending. The President’s record total spending would remain higher than 22 percent of gross domestic product (GDP) throughout the decade, “well above the 21.0 percent average seen over the past 40 years,” CBO says.
The combination of policies in the President’s budget produces cumulative deficits of $6.4 trillion through 2022, $3.5 trillion more than CBO’s baseline – sharply different from the more than $5 trillion in deficit reduction the President’s budget claimed. Yet the President’s sole response to this crisis is to raise taxes. He ignored the recommendations of his own deficit reduction panel, the Bowles-Simpson Commission, and has offered no plan to reverse the devastating across the board spending cuts scheduled to start in January—instead insisting that Congress must find an answer. Congress does indeed need to respond—but so does the President.
— Patrick Louis Knudsen
Key Tax Points and Obama Falsehoods
President Obama and Governor Romney had a long back-and-forth on taxes to open the debate. They touched on two important tax topics vital to the future of the economy.
Most of the time was spent on Governor Romney’s tax plan. Romney’s plan, like most tax reform plans, would lower tax rates and make other changes to the tax code to encourage growth. The economy will not recover fully until we have tax reform.
President Obama repeated the falsehood that Romney’s plan would raise taxes on the middle class. This incorrect assertion was spread by a biased report from the Tax Policy Center. Romney’s plan can make pro-growth changes to the tax code and doesn’t have to raise taxes on the middle class.
Less time was spent on another important topic: the corporate income tax. The U.S. now has the highest corporate tax rate in the developed world, and we remain one of the only countries that taxes our businesses on the income they earn in foreign countries. We will continue to lose jobs to more competitive countries until we bring that high rate down from 35 percent to meet or fall below the 25 percent average in countries we compete with for new investment.
Some time was also spent on President Obama’s plan to raise the top marginal tax rate over 40 percent. It is important to keep in mind that raising the top rate would fall heavily on job creators and hurt job creation.
President Obama falsely claimed businesses can take a deduction for moving jobs overseas. No such deduction exists.
— Curtis Dubay
What Is Obama’s Tax Reform Plan?
President Obama has roundly criticized Governor Romney’s tax reform plan, but where’s the President’s plan? All President Obama has proposed is to raise taxes on those who run small businesses and hire workers, who are highly productive citizens and good investors. Otherwise, Obama’s proposals as detailed in his budget are little more than a cattlecall of housecleaning tweaks. This is especially astounding when one recalls that Governor Romney has no mighty engine of tax expertise at his beck and call, whereas the President has the Treasury Department, the National Economic Counsel, the Council of Economic Advisors, and many more able bodies on the government’s payroll eager to do his bidding.
With so much talent available to him, and yet no proposal for fundamental tax reform whatsoever, one can only presume President Obama is fundamentally content with the current individual income tax system.
— J.D. Foster
Tax Cuts vs. Tax Increases
President Obama mentioned how the middle class has benefited from his tax policies, for example from the extension of the Bush-era tax rates. How ironic, then, that the President’s own budget proposal for FY 2013 would raise taxes by $2 trillion. Oh, and then there’s Taxmageddon, which Congress and this President have yet to solve, despite warnings far and wide. All of that hardly adds up to responsible tax policy.
— Emily Goff
Obama on Romney’s Tax Reform
President Obama has utterly and consistently dissembled regarding Governor Romney’s tax reform plan. Contrary to Obama’s assertions, repeated unquestioningly in the mainstream media, the Romney plan is to cut individual income tax rates 20 percent, for tax reform to be revenue neutral, neither raising nor lower revenues in the aggregate, and for tax reform to be distributionally neutral, neither raising taxes on the middle class nor cutting them for upper earners. Analysis to the contrary by some outlets is simple misinformation, intentional or otherwise.
To be sure, it will be difficult to cut individual income tax rates the full 20 percent as Governor Romney proposes and still meet the criteria of revenue and distributional neutrality. Guess what? Tax reform will be terribly difficult no matter how it is pursued. Setting an ambitious goal is an essential step even to start the effort. Perhaps once the debate is fully underway, the nation will find cutting rates 20 percent is just too much, or perhaps the nation will find the exercise so liberating, and the prospects of a simpler tax system and a stronger economy so enticing, that 20 percent reductions are seen as too cautious. The point is, the current tax system needs replacing, and Romney has proposed a strong start. In contrast, President Obama has proposed higher tax rates.
— J.D. Foster
Both President Obama and Governor Romney discuss energy production as a way to create jobs in the United States. While President Obama is right that oil and gas production in the U.S. is the highest it has been, Governor Romney was correct in saying that production is predominately occurring on private and state lands. The way to create energy jobs is to open areas for exploration and development, create an efficient permitting process for all energy projects, and remove subsidies for all energy sources. Energy subsidies and government “investments” do not create jobs. They simply shift labor and capital from one sector of the economy to the other.
— Nicolas Loris
Tax Increases and the Economy
President Obama has long insisted on higher taxes for small businesses, investors, and upper-income earners. Apparently, it does not matter to him that this can only harm the economy, which has sputtered badly under his management. Apparently, it does not matter to the President that these individuals already pay a stunning share of the federal income tax burden. Apparently, it does not matter to Obama that these tax hikes would at most be a drop in the bucket toward reducing the budget deficit. All that matters to him, apparently, is that these taxpayers be punished with higher taxes for the transgression of earning a higher income. It should surprise no one, then, that a President so antagonistic to the forces of economic growth has managed to achieve so little of it.
– J.D. Foster
Time and time again, Americans have heard from President Obama and others in Washington that government investments—read: massive amounts of spending—will create the jobs Americans need. Time and time again they have been wrong. President Obama tonight dusted off that claim and called for even more government spending. It’s exactly the wrong prescription.
Government stimulus spending does not help the economy grow or “create” jobs, beyond perhaps a localized effect here and there. To make matters worse, Americans should be concerned about the fact that this spending has to be paid for, either through higher taxes or increased borrowing or both, which threaten to harm the economy further.
The private sector does a much better job than the federal government at creating jobs when and where there is demand for them. Try laying off on the anti-business regulatory onslaught from the National Labor Relations Board, the EPA, and others that is costing businesses millions of dollars. Try fixing Taxmageddon now to give businesses the certainty about their tax rates next year that they need to make hiring decisions today. Do those things and you just might see the economy take off.
— Emily Goff